Good morning and welcome to Ring Energy's Q4 and full year 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note, this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations. Please go ahead.
Thank you operator, and good morning everyone. We appreciate your interest in Ring Energy. We will begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the Q4 and full year. We will then turn the call over to Travis Thomas, Ring's Chief Financial Officer, who will review our financial results.
Paul will then return to discuss our future plans and outlook before we open the call up for questions. Joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP of Engineering and Corporate Strategy, Marinos Baghdati, Executive VP of Operations, and Steve Brooks, Executive VP of Land, Legal, Human Resources and Marketing. During the Q&A session, we ask you to limit your questions to one and a follow-up.
You are welcome to re-enter the queue later with additional questions. I would also note that we have posted a Q4 and full year 2022 earnings corporate presentation to our website. During the course of this conference call, the company will be making forward-looking statements within the meaning of Federal Securities Laws. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements, and the company can give no assurance that such forward-looking statements will prove to be correct. Ring Energy disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in our filings with the SEC.
These documents can be found in the investor section of our website at ringenergy.com. Should one or more of these risk factors materialize, or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally, as a reminder, this conference is being recorded. I would now like to turn the call over to Paul McKinney, our Chairman and CEO.
Thanks, Al. Welcome everyone, and thank you for your interest in Ring Energy and for joining us today for our Q4 and year-end 2022 earnings call. We are pleased with our record operational and financial performance during the Q4. Contributing to our success was a full three months of production from our Stronghold acquisition, the continued implementation of our targeted 2022 capital spending program, and our ongoing initiatives to drive further efficiencies in the business. During the Q4 , we grew sales volumes by 34% over the Q3 to a record of 17,856 barrels of oil equivalent per day.
This was slightly below our guidance, it was primarily due to downtime associated with the impact of the winter storm conditions, gas purchaser system constraints limiting our gas sales in the CBP and Northwest Shelf areas, and adjustments for year-end reversionary interests and after payout conditions. We brought online 7 new horizontal wells, including 5 in Northwest Shelf and 2 in the legacy Central Basin Platform area, an area we now call the CBP North. We also brought on 5 new vertical wells in the Stronghold acreage, an area which we call CBP South. We also performed 9 recompletions in CBP South. We produced a record adjusted EBITDA of $56.3 million during the Q4 that was 135% higher than the same quarter for the previous year.
We spent $42.6 million on capital projects, which was at the lower end of our guidance of $42 million-$46 million. The result was $5.5 million of free cash flow, which was our 13th consecutive quarter of free cash flow generation. Additionally, we reduced our debt position by $20 million during the quarter and $37 million since closing the transaction on August 31, 2022. We also reaffirmed the company's borrowing base of $600 million under our revolving credit facility in December. The Q4 marked an end of a transformational year for the company. We began 2022 with a solid base of core assets in the Northwest Shelf and Central Basin Platform and a well-defined plan to further develop our high rate of return inventory through a continuous one-rig drilling program.
Our pursuit of accretive acquisitions was rewarded in the Q3 by closing the Stronghold acquisition. We ended the year with a successful integration of those assets into our operations, accounting, and land records systems. 2022 was marked by several highlights, including record sales volumes of 12,364 barrels of oil equivalent per day that were 45% higher than 2021. Record net income of $138.6 million or $0.98 per diluted share. Growth in adjusted net income of 251% to a record $107.5 million, or $0.89 per share. A 134% increase in adjusted EBITDA from the previous year to a record of $195.2 million.
A strong free cash flow of $34.8 million and record cash flow from operations of $172.9 million. A 70% and a 149% year-over-year increase, respectively. We ended the year with $415 million of debt on the balance sheet and $188 million in liquidity, which is 3 times the liquidity we had at the end of 2021. We lowered our leverage ratio by more than 50% from the previous year to 1.6 times. During the full year of 2022, we drilled and completed 27 horizontal wells, including 18 in the Northwest Shelf and 9 in the Central Basin Platform North, and 5 vertical wells in the Central Basin Platform South. We also performed 12 recompletions in CBP South.
Our success in 2022 was also reflected in our year-end SEC total proved reserves, which grew 78% to a record 138.1 million barrels of oil equivalent over the prior year. Contributing to the increase was 62.9 million barrels of oil equivalent from acquisitions, 1.2 million barrels of oil equivalent from positive well performance revisions, and 0.8 million barrels of oil equivalent from extensions and discoveries. Partially offsetting the overall increase was approximately 4.5 million barrels of oil equivalent of production. The result was an all-in replacement ratio of 13.4 times our production for the year. The PV-10 of our total proved reserves using SEC prices grew 108% to $2.8 billion.
Turning to our outlook, we intend to spend between $135 million and $170 million during 2023. That includes a capital efficient combination of drilling horizontal wells on our legacy acreage and vertical wells on our CBP South acreage. This amount also includes planned spending for recompletions, capital workovers, infrastructure upgrades, leasing costs, and ESG-related projects. In January, we began our 2023 capital spending program with the drilling and completion of 3 horizontal wells in the Northwest Shelf, all of which have been placed on production. A fourth horizontal well in the Northwest Shelf has been drilled and is expected to be completed and placed on production by the end of this month.
Additionally, we picked up a rig in CBP South area to drill 3 vertical wells and anticipate having all 3 wells online by the end of the month as well. Our 2023 budget assumes WTI oil prices are between $70 and $90 per barrel of oil and Henry Hub prices of between $2 and $4 per Mcf. As in the past, we have designed our spending program with flexibility to respond to changes in commodity prices and other market conditions. We expect full year 2023 sales volumes to be between 17,800 and 18,800 barrels of oil equivalent per day.
When considering the midpoint of our full year 2023 sales volume guidance, we anticipate a 48% increase over full year 2022 and a 2.5% increase over Q4 2022. For the Q1 of 2023, we expect sales volumes to come in between 17,800 and 18,300 barrels of oil equivalent per day. With that, I will turn this call over to Travis to discuss our financial results and guidance in more detail. Travis?
Thanks, Paul. Good morning, everyone. Echoing Paul's comments, we were very pleased with our record results for the Q4 and full year of 2022. Our Q4 benefited from the three months of results from the recently acquired Stronghold assets, as well as the continued strong performance of our targeted 2022 development campaign and ongoing efforts to drive further operational efficiencies. With that backdrop, during the Q4 of 2022, we sold approximately 1.1 million barrels of oil, 1.7 Bcf of natural gas, and 241,000 barrels of NGLs, for a total of 1.6 million BOE. This is 34% higher than sales of 1.2 million BOE in the Q3 .
For full year of 2022, we grew sales volumes to 4.5 million BOE, a 45% increase from 3.1 million BOE in 2021. Q4 of 2022 realized pricing was $81.62 per barrel of crude oil, $2.39 per Mcf of natural gas, and $17.21 per barrel of NGLs, or $60.69 per BOE. This was moderately lower than our realized pricing for the Q3 of $77.28 per BOE. For the full year of 2022, we saw a 22% increase in realized pricing, growing to $76.95 per BOE from $63.14 in 2021.
Our Q4 average oil price differential from NYMEX WTI futures pricing was a negative $1.07 per barrel versus a positive $2.28 for the Q3 of 2022. This difference is due mostly to the Argus CMA role that declined to $1.79 per barrel on average for the period, and the Argus WTI/WTS, which declined to $1.68 per barrel from the Q3 . Our average natural gas price differential from NYMEX futures pricing for the Q4 was a negative $3.79 per Mcf, compared to a negative $3.15 for the Q3 . Our realized NGL price for the Q4 averaged 21% of WTI, compared to 28% for the Q3 . This combined result was record revenue for the Q4 of $99.7 million.
That was 6% higher than Q3 revenues of $94.4 million. We also posted record revenues for the full year of 2022 of $347.2 million. That represented a 77% increase from the $196.3 million for 2021. Looking at the more significant expense line items on the income statement, LOE was $17.4 million or $10.60 per BOE, compared to $13 million or $10.67 per BOE for the Q3 of 2022. Our absolute LOE rose due to the increased sales volume during the quarter, while LOE per BOE was a bit lower than the prior quarter and below the midpoint of our guidance range of $10.25-$11.40 per BOE.
Production taxes were $5.2 million or $3.16 per BOE versus $4.6 million, or $3.74 per BOE for theQ3 , with the tax rate remaining steady at approximately 5%. DD&A was $20.9 million compared to $14.3 million for the Q3 of 2022. On a per BOE basis, DD&A increased to $12.71 from $11.73 in the Q3 . Cash G&A, which excludes share-based compensation, was $6.1 million versus $5.9 million for the Q3 . Both the fourth and Q3 of 2022 each included about $1 million of transaction cost.
Adjusting for the transaction cost, Q4 2022 cash G&A was $3.14 per BOE, compared to $3.85 per BOE for the Q3 . This represents an 18% decrease and a direct reflection of the synergies afforded by the Stronghold transaction. Interest expense was $9.5 million versus $7 million for the Q3 , with the increase substantially due to a higher average daily balance of long-term debt associated with the additional borrowings on the revolving credit facility due to the Stronghold transaction. During the Q4 , we posted net income of $14.5 million or $0.08 per diluted share.
Excluding the estimated after-tax impact of pre-tax items, including $5.4 million of non-cash, unrealized loss on hedges and $2.2 million for share-based compensation expense, and $993,000 of transaction cost for the Stronghold acquisition. Our Q4 adjusted net income was $21.8 million or $0.13 per share. This is compared to Q3 of 2022 net income of $75.1 million or $0.49 per diluted share. Excluding the estimated after-tax impact of pre-tax items including $47.7 million for non-cash unrealized gain on hedges and $1.5 million for share-based compensation expense, and $1.1 million for transaction cost, our Q3 adjusted net income was $32.5 million or $0.28 per share.
For full year of 2022, we posted record adjusted net income of $107.5 million or $0.89 per share. This was more than 250% higher than $30.6 million or $0.31 per share for 2021. Looking at adjusted EBITDA, we are pleased to report a record $56.3 million in the Q4 compared to $56 million in the Q3 , as lower realized pricing for the Q4 significantly reduced the benefit from the 34% increase in sales volumes from the Q3 . Q4 2022 adjusted EBITDA was more than 135% higher than the $24 million reported for the same period in 2021.
For full year of 2022, we posted record adjusted EBITDA of $195.2 million, which was 134% higher than the $83.3 million for 2021. Free cash flow for the Q4 of 2022 was $5.5 million compared to the $9.7 million in the Q3 . The decrease was primarily due to lower realized pricing and higher interest expense in capital spending, partially offset by higher sales volumes. For full year 2022, we generated free cash flow of $34.8 million. That was 70% higher than the $20.5 million in 2021.
As of December 31st, we had $415 million drawn on our revolving credit facility, which reflects a debt paydown of $20 million in the Q4 and a total of $37 million since the closing of the Stronghold transaction. With a current borrowing base of $600 million at the end of 2022, we had $184.2 million available on the revolver, net of letters of credit. Combined with $3.7 million of cash, we ended 2022 with liquidity of $188 million. We are focused on further debt reduction in 2023. Of course, realized commodity prices and the timing of capital spending will have an impact on the cadence of quarterly debt paydown.
I would also note that we recently paid the $15 million deferred payment associated with the Stronghold transaction. Looking at our share count, during the Q4 , we had 800,000 common warrants exercised at $0.80 per warrant. Our Q4 financials reflected the issuance of the 800,000 shares of common stock and the receipt of $640,000 of cash. To date, in 2023, we have had approximately 4.5 million common warrants exercised, resulting in approximately 14.6 million common warrants that remain outstanding. Turning to our 2023 outlook for the full year and Q1 .
As Paul discussed, for the full year of 2023, we anticipate capital spending of $135 million-$170 million, which includes the estimated cost to drill 12-15 new horizontal wells, drill 12-25 new vertical wells, complete and place online 24-40 new wells, and recomplete 6-10 wells. Included in our full-year outlook is spending for recompletions, capital workovers, and infrastructure upgrades, as well as leasing costs and non-operated drilling, completion, and capital workovers. Based on the $152.5 million midpoint of spending guidance, we expect the following estimated allocation of capital investment, including 70% for drilling, completion, and related equipment and facilities, 22% for recompletions and capital workovers, and 8% for land, ESG, and non-operated capital.
Looking at our sales volume guidance, we expect full year of 2023 to average 17,800-18,800 BOEs per day, of which approximately 68% is oil, 17% is natural gas, and 15% is NGLs. Looking at this year's Q1 , as Paul discussed, in January, we kicked off our 2023 capital investment program, including drilling and completing 3 horizontal wells in the Northwest Shelf to date, with all wells placed on production. A fourth horizontal well in the Northwest Shelf has been drilled and is expected to be completed and placed on production by the end of this month. Additionally, we picked up a rig in CBP South to drill 3 vertical wells and anticipate having the 3 wells completed and online by the end of this month.
As such, there will be minimal benefit for the Q1 production results associated with these four wells. Accordingly, Q1 2023 sales are expected to be in the range of 17,800 to 18,300 BOEs per day, of which we expect 68% to be oil, 17% natural gas, and 15% NGLs. For full year 2023, we anticipate LOE of $11 to $11.60 per BOE. For the Q1 of 2023, we currently expect LOE to range between $11.10 to $11.50 per BOE. I would note that all of our 2023 guidance is included in yesterday's release and presentation on our website. Turning to the hedge position.
For full year 2023, we currently have approximately 1.7 million barrels of oil hedged, or 38% of our oil sales based on the midpoint of guidance. We also have 2.4 Bcf of natural gas or 35% of our natural gas sales based on the midpoint of guidance. For a quarterly breakout of our hedge position, please see our presentation on our website, which includes the average price for each contract type. With that, I will turn it back to Paul for his closing comments before Q&A. Paul.
Thank you, Travis. Before opening this call up for questions, I'd like to reemphasize several points we have made in the past. First and foremost, the Stronghold acquisition has substantially increased our size and scale, lowered our overall cost structure, and improved nearly every per share metric normally considered when comparing similar transactions. We are a stronger, more diverse energy company, better positioned to manage the risks associated with price volatility and unforeseen operational issues such as power outages or mechanical failures or weather-related downtime. We have significantly increased our ability to generate revenue due to higher sales volumes and the roll-off of lower price hedges. The improved capital efficiency of our undeveloped inventory provides the opportunity to further optimize our future capital programs to maximize cash flow generation and to remain focused on reducing debt.
The improved capital efficiency is demonstrated with the progress we have made regarding our return on capital employed, which was over 20% for 2022, representing an increase over our performance in 2021 of more than 75%. The improved capital efficiency also provides enhanced flexibility to respond to changing market conditions or to proactively adjust our capital spending plans to accommodate our pursuit of accretive balance sheet enhancing acquisitions. The bottom line is simply this. Ring Energy today is larger, stronger, and more efficient, with an improved balance sheet and enhanced ability to pay down debt. As previously shared, we paid down $20 million of debt in the Q4 and $37 million in the last four months of the year. We have also increased our liquidity more than 200% over the previous year and our proved reserves by almost 80%.
Having said that, we have talked about the state of the company, our plans for 2023, and our strategy, but we haven't yet talked about the principles driving our strategy. Simply put, we try to align our actions to those we believe create long-term value for our stockholders. We believe this company needs more size and scale to help our common stock be eligible as an investment opportunity to a wider cross-section of the investment community. While we have materially reduced our leverage ratio, we believe our absolute debt levels justify our continued commitment to pay down debt.
We believe continuing to pursue accretive balance sheet enhancing acquisitions is one method of achieving both of these objectives. We believe we should position this company to return capital to our stockholders. In short, we believe staying the course on our value-focused proven strategy will continue to position this company for success in 2023 and beyond, creating long-term value for our stockholders. With that, we will turn this call over to the operator for questions. Operator?
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question will be from Neal Dingmann from Truist. Please go ahead.
Morning, guys. Thanks for the time. Paul, my question for you or the team is just, you did lay this out on the press release, but I'm wondering when it comes to sort of operational optionality, it sounds like now with Stronghold, you've got obviously a lot more options. I guess my question is, you know, how does the verticals over there compete with the horizontal sort of legacy? Maybe just talk about, you know, I know you did lay out kind of how many you've drilled thus far year to date and kind of what the plans are. I'm just wondering what is the, you know, how much optionality you have in the plan and maybe, you know, for you or the guys, how they compete for returns between the two.
Go ahead. I'm gonna give a first stab at that, but I'm gonna let a couple of these guys kinda share their points of view. Bottom line is this, the undeveloped opportunity that came with the acquisition have very, very competitive economics. Some of them are actually superior due to the short cycle time from the date of spud to the date you start getting oil into the tanks type of a thing. At the same time, we have system constraints. We've talked about this in the past with respect to Northwest Shelf and the Central Basin Platform or an area we call CBP North now. We've tried to balance our drilling programs and our undeveloped programs and our capital spending programs to maximize the efficiency of the infrastructure that we have.
The primary issue up in the north was saltwater disposal. Well, in the south, we have very attractive rates of returns, very quick payouts and turnaround times, very capital efficient program, but we also have other limitations. We also have saltwater disposal constraints down there. We also have power grid or power and electricity constraints. We are maximizing the cash flow generation from these assets, trying to minimize the investments in infrastructure where it's not necessary. We are making investments in infrastructure where it is necessary, but it's a balanced program. As it turns out, some of our best economics are associated with some of the vertical wells we're drilling in the south.
They're very, very robust, from an economic perspective, and they're very robust from a standpoint of the impact it can have for the company. I don't know if there's any more I need to say. Marinos, how about you?
The only thing I'd add, Paul, is that in terms of optionality, our rig contracts this year are all well to, well to well with extensions, so there's no commitment, long-term commitment in terms of multiple wells. We can pivot at any point. The same thing with the casing. We've secured casing for multiple projects in both areas, and so that gives us a lot of flexibility to adjust accordingly with the infrastructure constraints that might catch us by surprise. In terms of the constraints in the south that we visited a little bit about on the last call, on the SWD side, we have resolved a lot of those constraints. The SWD is no longer a constraint in the south.
The fresh water supply has also been a restraint, so we're really just facing the electrical supply kinda, you know, pivoting and trying to resolve those, which for the most part we've made great headway there too.
Great. You know, Paul, maybe that leads me into.
Neal-
Go ahead. I'm sorry. Go ahead.
Yeah. Sorry, Neal. This is Alex. I wanted to echo on and piggyback off of Paul's and Marinos' comments. We specifically anticipated some of these conversations or questions. You'll see that we really revamped our IR deck. If you go to page 21 on our deck, it really kinda tackles your question there a little bit more clearly, giving you a feel for what is the average well performance between a horizontal well and a vertical well and the differences in cost. That is the blended average of every single well we have. When you're asking, you know, will you be spending capital on vertical wells?
Yes, as Paul mentioned, there are some very, very high rate of return, very short cycle time investments there, and that's specifically due to our PJ Lea field, and that the reason that that one's even greater economics is because the NRIs are really high in that asset. If you look at page 22, you'll also get a flavor for IP60 and % oil. As far as optionality, we're obviously gonna focus our capital to the highest rate of return investments. Both those slides, 21, 22, really kinda answer your question.
Yeah, I like that. I saw those. That's what I was thinking more, Alex, just on sort of future, because you're right. I like the way you really gave some good details on what the sort of average has been so far. That's what I was just kind of thinking on just future Stronghold. Then kind of my follow-up is, Paul, a little bit on the same vein, if you or Marino, if one of you guys want to jump in, is more... You know, there's a lot of a lot of different, you know, forecasts out there for prices. I mean, look, oil is up to over $1 today and, you know, some thought before it was gonna be recessionary fears.
I'm just wondering how stable, I guess the easiest way to answer it or to ask the question is, how stable is your plan? I mean, if prices, you know, look, here we are today at, you know, let's call it $77 oil. Oil goes up to $85 or, you know, goes down to $65. Do you anticipate having, you know, relatively the same plan? You know, I'd just be curious to know, because you seem to be in a great spot to like, you know, leverage is already getting down there. You're soon gonna be down under 1 time. I mean, I like all that. I guess my big question is just maybe when you think about, just pricing sensitivity, Paul.
You're not the only one that has asked this question, both online and privately. We shared a little earlier that our budget plans are assuming prices between $70 and $90, and for WTI and Henry Hub of between $2 and $4. Let's just draw up a hypothetical. If, if oil prices fall below $65 for a sustained period of time, we've got the flexibility to change our capital spending program, limit it to just the absolute highest ones, we can. Again, we've got debt repayment goals this year, and we're gonna stick to them, one way or another. We know we've got the capacity. I mean, for example, I mean, if you look at January's production, January 2023.
Our January 2023 production averaged higher than the high end of our production guidance for this year. Okay? That should send a very clear message that we are gonna be capital disciplined this year. That capital discipline is gonna be related to prices. Let's take the opposite scenario. Let's say we're above $85 or $90 for a sustained period of time. We've got the ability to port on the growth organically, and we will do that subject to these system limitations that we have in infrastructure. Alex, you want to throw in something?
Yes. And to also echo Paul's comments here, I think that if you look at our guidance, we also had a bigger range on CapEx to try to, you know.
Account for that.
for that. Yeah.
Does that answer your question, Neal?
Yeah, spot on. That's kind of what I thought. I think it is that you guys are in fantastic position. Thank you, Paul.
Thank you, Neal.
Thank you.
Once again, if you would like to ask a question, please press star 21. The next question is from Jeff Robertson with Water Tower Research. Please go ahead.
Thank you, Paul. You all closed the Stronghold acquisition in August, and having owned those assets now for, and operated them for five or six months, is there anything you've learned since you, since you did your diligence that you think about as playing a significant role in the 2023 capital program?
Yeah, there's quite a bit we've learned. I will say this, we are every bit as excited today about this acquisition as we are the day we signed the purchase and sale agreement. We have learned several things. I'm gonna turn this over to Marinos, he can expound a little bit more on these. We are experimenting and trying different completion techniques. We've evaluated the condition of many of the wellbores, many of the wellbore recompletions may end up because of the condition of those wells. We think that through increased efficiencies and other things, we may end up redrilling those wells instead of recompleting. That's gonna be a case-by-case basis.
We have come to realize, and as mentioned by Alex Dyes just a little earlier, we have certain areas in the CBP South that actually do demonstrate superior economics to even the portfolio we had before the acquisition. Everybody knows how strong our economics are in the Northwest Shelf and Central Basin Platform, the legacy acreage that we have. The rates of return and the economics of these opportunities that came in with this acquisition truly are outstanding. They're very competitive in this portfolio, we're really excited about that. Do you want to say anything more about the operations?
No. The only thing I'd add is that, you know, Paul said we're just as excited. I think from an operations standpoint, we're more excited than we were during the acquisition. We've actually found on the PDP side, we've had five or six projects where we've gone in and cleaned out the wells and performed a little stimulation and so forth, and actually significantly increased our production and arrested some decline. We feel really good about the asset. We're learning a lot about it and extremely excited.
I'll add one more thing, too. Due to the nature that we got several fields that we didn't even assign a lot of value on during the acquisition, that we are testing certain concepts that have proved valid both in McKnight and PJ Lea on some of the other assets. I think that you'll see us throughout some future calls share some of those results. More to come.
Thanks. Just a quick follow-up on that, and then I have another. Redrilling wells rather than recompleting, is that because you think you can get a better completion over maybe?
Exactly.
Broader, broader zone than just being able to go in and use the existing casing?
That's right. It's a combination of a couple of things. What's the condition of the casing, and also what kind of cement job do they have and the quality of the cement job. As you know, we're fracking these wells. Really the objective is to, you know, exploit the reserves for the lowest cost and lowest risk. It's just a balance of all those factors as we evaluate each one of these opportunities individually, we'll make a call on that. One thing that we have learned, when you look at the results that we've seen, new wells tend to have superior producing rates and EURs associated with them than the recompletion wells. This is what's primarily driving that.
As a follow-up, Paul, you mentioned continuing to build scale in the Permian. Stronghold gave Ring a lot more options in terms of types of projects to invest your capital in. Can you just briefly describe what are the characteristics of an acquisition that fit the existing Ring asset base?
Yeah, that's a really good question. I think we were very fortunate with the Stronghold acquisition in that the acquisition, the way it was structured, and how it was negotiated with the sellers, it turned out to be a very, very accretive across the board on nearly every metric. Matter of fact, I don't know of a metric that it wasn't accretive on, and it did a lot for this company. We targeted that set of assets. We went to them, and as a result of our first offer not being sufficient for them, they decided to run a process, and we prevailed through that process. We chose those assets or that area because of what it provided.
We're still doing a similar type of analysis on other assets in the Central Basin Platform and in the Permian Basin. It's gonna look a lot like that. Now, that's what we target. Now, that doesn't mean that we'll end up with something that looks just like it. The reason being is because we've been approached, and we are approaching others in the marketplace that have certain types of assets, certain assets. We would be willing to do a PDP buy without a lot of development opportunities if we got it for the right price. Our preference is to find production, existing PDP production that lowers our operating costs, has shallow declines, long lives, and then have undeveloped opportunities that have similar or at least competitive economics with the project that we have in our current inventory.
I've said this in the past, Jeff, I don't want to dilute the quality of my inventory by buying stuff that's you know, lower quality. Now, lower quality compared to the portfolio I have may still be very robustly economic. I got to be honest with you, there's a lot of companies out there that would... they're envious of the rates of returns and the quality of our undeveloped opportunity set. That being what it is, we do believe that there are opportunities out there. We believe that there are more opportunities out there that a company our size can take down by ourselves. We're really excited about the future.
We do believe that there's a transaction to be made again here, sometime in 2020 through 2024. It's all a function of how the negotiation goes, and whether we can structure the deal in a way that it is accretive to my existing shareholder and it reduces, maybe not reduce debt, but actually strengthen the balance sheet. Those are the main criteria. Again, we really like the metrics and the financial performance that this company can generate. We don't want to dilute that. We're gonna be very disciplined. We're just not gonna buy junk. We're not gonna buy a bunch of PNA. We're not gonna do those types of things. Does that answer your question, Jeff?
It does. Thank you.
Very good.
Our next question is from Noel Parks from Tuohy Brothers. Please go ahead.
Hi, good morning.
Hey, Noel. Good morning.
Actually, I hopped on a little late, so apologies if it's something you covered already. Just based on your last comments about what you might consider evaluating for acquisition, with a PDP acquisition, are there properties out there where there would be meaningful recompletion opportunities that could move the needle on the value of some things, some of the things you have out there?
There are actually. It's all a function of who the prior operator was, Noel. You know, there are certain operators in the Central Basin Platform and the greater Permian Basin that are known to work their properties really, really hard. They've already mined many of those opportunities. There's other operators that have, you know, focused their capital spending elsewhere. Some of their assets could be classified as not having been worked as hard. That was a benefit of the Stronghold acquisition. If you look at the position that Stronghold acquired from Devon and Chevron, they had developed those assets and been managing those assets for quite some time.
They tried some ideas, but they found that their capital, you know, that they allocated their capital elsewhere, and so they left behind these type of opportunities for Stronghold and then now us. Yes, there are. On the Central Basin Platform itself and other areas in the Northwest Shelf, we've identified assets that would be classified, kind of what you were saying, pretty much PDP, maybe not a whole lot of drilling opportunities, but there are some recompletion opportunities out there as well.
Great. Thanks a lot.
The next question will be from Rick Schoenlein from R.M. Stark. Please go ahead.
Hey guys, just one quick question I keep getting from my clients. You know, we made a great acquisition, we've got record numbers, we're making money, we're paying down debt, but our stock can't hold $2 a share. What are the suspicions out there in the market that maybe we're not talking about? Can you help me explain that?
You know, Rick, I get asked that question more than any other question, it seems like. That's a really tough one to understand. If you go back to the investor presentation, we actually lay out kind of the argument as to why it is that we are undervalued in the marketplace. I believe that today Ring Energy stands as probably one of the best investments in the oil and gas space. Why is our stock so undervalued? We know that the industry has been hit hard since last summer with the change in oil prices. We know that the smaller companies that we've kind of fall in that category have been hit disproportionately a little harder than some of the bigger companies.
In my opinion, Ring Energy has generated superior or at least better, as good or better returns than our peer group, yet we're trading at a much lower multiple. To explain that would take quite a bit of time of investigating the marketplace and what's been happening. I believe that there are a couple of things that probably contribute to that. I think, there are some people that will not invest in a company with, the debt levels that we have. As you point out, we're quickly and very rapidly addressing that, and we're gonna have a balance sheet, a really strong balance sheet, soon, just from our organic ability to pay down debt.
If we can do something similar to what we did with the Stronghold acquisition, we can strengthen that balance sheet even more. I'd hate to think that people are penalizing us too heavily for that. To be honest with you, Rick, your question probably is better addressed to some of the analysts that follow us, such as Jeff or Neal or Noel and John White, who's not on the call today. Some of them would probably have more insight than I do in terms of why we're being held down. Alex, you have something you want to say?
I do. I would also add the comments that this is the Q1 that we announced all of our metrics as a full pro forma company, meaning all Stronghold for three months. I think that a lot of the Street and the public is waiting to see.
Right.
Now once you get a couple of quarters underneath us watching the performance of the company, you'll really start seeing the effects of that acquisition.
Yeah. I also question, and I'll throw in a little bit more here. You know, as Travis shared, you know, $4.5 million warrants were converted and exercised and converted into common shares this quarter. That has to have an impact, Rick, on why our stock performance is the way it is. Is there an overhang? These are the types of questions that a lot of people ask. I believe if there is an overhang out there, it's temporary, it's not long term. I believe that if we continue to generate the returns, we continue to strengthen our balance sheet, and we continue to do all the right things, eventually the marketplace is gonna come around.
That is the reason why I personally believe when I look at the oil and gas space, other companies that are similar or would be considered peers, we represent the most compelling investment opportunity out there in the market today.
Okay, thanks.
You're welcome. Thanks for the question, Rick.
The next question is a follow-up from Jeff Robertson from Water Tower Research. Please go ahead.
Follow along the lines of leverage in the $90 high end of your the way you're budgeting. If prices went back up to 90, how do you balance increasing capital versus accelerating deleveraging if people are concerned with deleveraging?
Yeah. Again, part of the reason why we gave that range of 70-90 is because when you fall below 70, and I use 65 as an example, for an extended or sustained period of time, that would really encourage us to change our capital spending programs. If we're at $90, I'm gonna take the additional excess cash from operations to pay down debt. If we get above $90 for a sustained period of time, let's just say we're at $100, well, we're probably going to add capital because we're gonna grow organically. It'll also be dependent on other factors such as, you know, do we have something in our sights? Are we successful in negotiating a deal? Will we bring a deal down this year? These type of things.
But, yeah. That was the purpose of providing the guidance. But if we're at sustainably above $100, yeah, I believe the marketplace could expect us to at least pick up the drilling and capital spending a little bit more than what we've shown here. Again, our preference is gonna be, you know, paying down debt. If the capital spend versus our EBITDA for the year gets below 50%, well, we'll probably keep it at that 50% level or more.
At a higher commodity price deck, you could both increase deleveraging and also grow the production base to support higher EBITDA numbers. You get lower leverage and higher EBITDA numbers, which in theory should flow through to the valuation.
It certainly would. In those types of scenarios, yeah, I believe we could, you know, surpass our debt repayment, goals for the year. In that type of a scenario where EBITDA is coming up, yeah, we could make substantial reductions in the leverage ratio itself, even to the point to where we're down around 1 or even potentially below 1.
Great. Thank you.
Ladies and gentlemen, at this time, there are no further questions, so I'd like to turn the conference back over to Paul McKinney for any closing remarks.
Okay, thank you again for your interest and joining us on the call today. We are looking forward to 2023. We're very excited about what this year can do for Ring's shareholders. We're working hard and diligently and continuing with the value focus proven strategy that we've laid out. We hope to hear from you again soon and join us on the next call. In the meantime, we'll be working hard for you. Thanks for joining us on the call today.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may disconnect.